Market outlook: Benzene poised to rebound

Benzene prices are expected to rise globally in the second quarter with stronger oil prices and demand from downstream styrene markets.

US OUTLOOK

The March US benzene contract price has fallen by 35 cents/gal since January to $1.77/gal. US benzene prices came under pressure from high levels of imports, lower consumption in the styrene sector and volatile upstream crude oil markets. The February contract price marks the first time US benzene settled below $2/gal since April 2009.

ICIS Analytics & Consulting believes that a price floor has been reached and the April 2016 benzene contract price will rebound to over $2/gal and maintain levels over $2/gal for the second quarter as West Texas Intermediate (WTI) prices had a strong rally in early March.

Despite Q4 2015 US benzene imports being 20,000 tonnes higher than in the previous quarter, imports were actually down nearly 13,000 tonnes versus Q4 2014. As styrene export demand strengthens, US benzene inventories are falling. US benzene exports fell 43,000 tonnes in Q4 2015 compared to Q4 2014. Stronger crude oil prices and higher import volumes will further support a rise in benzene prices for Q2 2016. US benzene consumption into styrene has been strong, with good export demand for US styrene and a market still tight from outages in 2015. However, the styrene turnaround during February did have an impact on benzene consumption and market sentiment.

EUROPE OUTLOOK

The March Europe benzene contract price is down by 22 cents/gal since January to $1.92/gal. Europe benzene prices fell amid volatile raw material costs and tracked US benzene prices down. Brent prices averaged around $32/bbl in February. Despite the recent increase in crude markets, oil prices remain highly volatile amid continued high inventory levels, and speculation on an oil production freeze. Naphtha flows from Europe to Asia shrank as inventories grew, dampening demand. This implies that naphtha’s premium to Brent should decline.

Higher naphtha and gasoline prices are expected in Q2 2016 and should have some seasonal impact on aromatics pricing. ICIS Analytics & Consulting expects Q2 2016 Europe benzene contracts to increase amid higher feedstock costs and good seasonal derivatives demand. In 2015, imports into Europe increased by about 50,000 tonnes compared to 2014 despite decreased levels arriving in Q4 2015 versus Q4 2014. In 2015, exports out of Europe increased by about 50,000 tonnes from 2014. Stronger exports can be traced back to Q1 2015, when prices had hit a low point and excess product was moved out of the region.

ASIA OUTLOOK

In contrast to the other two regions, the March Asia benzene contract price rose by 23 cents/gal since January to $2.03/gal, possibly as an overreaction to crude gains towards the end of Q1 2016, since naphtha stabilised and there were no major changes in Chinese demand.

ICIS Analytics & Consulting forecasts that Asia benzene prices may now correct slightly to stabilise at a healthy benzene-naphtha spread in Q2 2016. Despite the decrease from March to April, the average quarterly Asia benzene price is expected to rise from Q1 to Q2 2016.

With naphtha demand dependent on upcoming scheduled cracker turnarounds, Asia benzene and styrene prices will be dependent on crude oil fluctuations. However, relatively lower naphtha prices and healthy refining margins will drive profitability of benzene production in the short term. On-purpose production margins from toluene may continue to be squeezed in 2016 amid stronger toluene prices. The other two regions are in surplus of benzene with production exceeding demand. This should remain over the next couple of years, with utilisation rates expected to stay healthy.

In Q1 2016, benzene exports from South Korea rose due to a marked increase in shipments to China, which increased almost fourfold ahead of the Lunar New Year. However, benzene exports to the US declined slightly.

In Q2 2016, China’s demand for benzene imports may decrease slightly as supply is expected to be ample despite the upcoming Korean turnaround season. However, higher styrene-benzene spreads may drive standalone styrene producers to buy more feedstock benzene to make the most of the current high margins.